TY - UNPB
T1 - Risk-neutral valuation under differential funding costs, defaults and collateralization
AU - Brigo, Damiano
AU - Buescu, Cristin
AU - Francischello, Marco
AU - Pallavicini, Andrea
AU - Rutkowski, Marek
PY - 2018/2/28
Y1 - 2018/2/28
N2 - We develop a unified valuation theory that incorporates credit risk (defaults), collateralization and funding costs, by expanding the replication approach to a generality that has not yet been studied previously and reaching valuation when replication is not assumed. This unifying theoretical framework clarifies the relationship between the two valuation approaches: the adjusted cash flows approach pioneered for example by Brigo, Pallavicini and co-authors ([12, 13, 34]) and the classic replication approach illustrated for example by Bielecki and Rutkowski and co-authors ([3, 8]). In particular, results of this work cover most previous papers where the authors studied specific replication models.
AB - We develop a unified valuation theory that incorporates credit risk (defaults), collateralization and funding costs, by expanding the replication approach to a generality that has not yet been studied previously and reaching valuation when replication is not assumed. This unifying theoretical framework clarifies the relationship between the two valuation approaches: the adjusted cash flows approach pioneered for example by Brigo, Pallavicini and co-authors ([12, 13, 34]) and the classic replication approach illustrated for example by Bielecki and Rutkowski and co-authors ([3, 8]). In particular, results of this work cover most previous papers where the authors studied specific replication models.
KW - risk-neutral valuation
KW - replication
KW - funding costs
KW - def ault
KW - collateral
UR - https://arxiv.org/abs/1802.10228
M3 - Working paper
BT - Risk-neutral valuation under differential funding costs, defaults and collateralization
ER -